Indonesia welcomed the offer because the club of rich nations had not demanded Jakarta re-join an unpopular International Monetary Fund (IMF) loan programme as a pre-condition for help, National Development Planning Minister Sri Mulyani Indrawati said, adding: "We have accepted the moratorium offer".

The IMF coordinated a five US billion dollar aid package for Indonesia after the 1997-98 Asian financial crisis.

Indonesia quit the program in 2003, with officials accusing the IMF of driving the country to the brink of bankruptcy with its policies.

Creditor countries also agreed to help without insisting on similar debt moratorium offers from private creditors, Indrawati said, adding that debt assistance from private investors would likely have led to a downgrade of the country's sovereign credit rating.

In January economics minister Aburizal Bakrie said Indonesia could refuse the debt freeze offer after it secured a 1.7 billion-dollar pledge from multilateral donors to rebuild tsunami-hit coastal regions.

The Paris Club had offered a debt moratorium to three countries, including Indonesia, that have been severely hit by the December 26 disaster, in a bid to help them reallocate resources for reconstruction efforts.

The Paris Club on Wednesday agreed to provide Indonesia and Sri Lanka with the one-year debt moratorium.

Indonesia has said the cost of rebuilding the tsunami-hit provinces of Aceh and North Sumatra may amount to more than 42 trillion rupiah (4.5 billion dollars). It expects to fund most of the reconstruction costs in 2005 and 2006.

Indrawati said the Paris Club's debt moratorium was worth 2.6 billion dollars, which includes principal and interest payments due this year.

In addition to the Paris Club debt moratorium, creditor countries also pledged 1.7 billion dollars in reconstruction funds during a meeting of the Consultative Group on Indonesia in January.

Separately, Bank Indonesia Deputy Governor Aslim Tadjuddin said the debt freeze was expected to cause the rupiah to strengthen.

"It will obviously have an impact on the rupiah, as we do not need to pay the principal and interest in the amount of 2.6 billion dollars," Tadjuddin said.

He said he was optimistic the rupiah would strengthen to below 9,000 to the dollar from the current 9,300 level, adding current weakness was due more to concerns over high world oil prices.

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